Very few people have a balanced budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More on the first try.  This week, I’ll talk about how to refine your preliminary budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More if it isn’t in balance.  I have been very fortunate in that it has been a long time since I found it challenging to meet my financial goals.  Also, I don’t know the specifics of any of your budgets, life-styles or financial goals. So, in this post, I will identify the changes you can make to refine your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More at a high level and provide links to articles by other financial literacy bloggers that provide a whole host of ideas on the specifics.  I hope that one or more of those articles will provide you with the ideas you need to successfully balance your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More.

The Bottom Line

The number on which you’ll want to focus is the Grand Total on the BudgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More tab.  If it is close to zero (i.e., within a percent or two of your total income) and you have incorporated all of your financial goals, you are done.  Otherwise, you’ll want to look at the section below that reflects your situation, i.e., whether the Grand Total is positive or negative, to learn how to refine your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More.

Your Budget Shows a Large Positive Balance

Congratulations!  If the value in the Grand Total line of the BudgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More tab shows a large positive number, you have more income than you are spending and saving.  You are among the fortunate few.

Before spending your excess income, you might want to review your financial goals.   Questions you could ask yourself include:

• Do I have emergency savings of three to six months of expenses?
• Are there other large purchases I’d like to make in the future?
• Do I have enough savings to take maternity/paternity leave?
• If you have children, am I saving for their education?
• Have I studied the full costs of retirement and am I saving enough?
• Have I contributed the maximum amounts to all of my tax-advantaged retirement savings accounts (IRAs and 401(k)s in the US, RRSPs and TFSAs in Canada)?
• Do I want to retire sooner (which would require more savings now)?

If you still have a positive balance after your review, you can consider increasing your discretionary expenses (possibly a newer car or a nice vacation or the addition of a regular treat).  Of course, there is never any harm in increasing your savings.

Your Budget Shows a Large Negative Balance

A large negative balance is much more common than a large positive balance.  I wish I could give you a magic answer to resolve this situation, but there are really only three options.

• Increase your income.
• Decrease your expenses.
• Borrow money either from a third party or by drawing down your savings.

Unless absolutely necessary, I suggest avoiding the third option.  If your expenses exceed your income and you make up the difference by borrowing either from your savings or a third party, you are likely to have a worse problem next year.  Unless either your income or expenses change, it can lead to a downward spiral.

Increase Your Income

Increasing your income can be a more effective way to balance your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More.  However, it has its own challenges and often requires a significant investment of your time and/or money.   Examples of ways to increase your income include:

• Get a part time job, but make sure it won’t jeopardize your primary job.
• Work overtime if you are eligible.
• Make sure you are earning a competitive wage by looking at relevant salary surveys. If you aren’t, ask your boss for a raise, such as described in this post, or look for another job in your field that pays more or offers more benefits.
• Consider getting more education that will provide you with the opportunity to make more money in the future. Some employers will pay for some or all of your tuition if the additional education is related to your job.  This choice is likely to cause more pain in the short termThe time period over which you re-pay the loan More, but can produce large benefits.  As an example, check out this post.
• Sell things that you don’t need. Here is a  post on this topic.
• Start your own business. This option is one that I suggest you pursue only very cautiously if you already have a tight budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More.  Starting a business can be very expensive, which of course will put further pressure on your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More.  Also, a large percentage of new businesses fail which means the owners lose money. According to Investopedia, 30% of business fail within two years of opening and 50% fail within five years.  Of those that survive, one source indicates that many business don’t make money until the third year.  If you want to start a side business, turning a hobby into a business is one of the most fun ways to do so.  Here is an article with some suggestions on how to do so.
• There are hundreds of articles about “side hustles.” I’ve provided a few examples. There are lots of pitfalls with side hustles, including many that might end up costing you money rather than making it. So, as with starting your own business, I suggest exercising caution if you decide to proceed with one or more of them.
  • How to Make Money Fast Easy
  • Legit Ways to Make Money on The Side This Year

Decrease Your Expenses

To be blunt, it is hard to decrease your expenses.  Here are some tips on things to consider:

• Separate your discretionary expenses from your required expenses. Required expenses include the cost of basic housing, a basic car, gas, groceries, medical care, insurance and the like.  Discretionary expenses are things you could live without, even if you don’t want to.  Here are several posts I’ve seen that provide ideas on how to cut back on discretionary expenses.
  • 67 Great Frugal Tips to Make You Wealthier Today
  • What costs you two weeks of salary per year and starts with C?
  • How Much is Coffee Costing You?
  • Stop Wasting Money
  • 10 Stupid Ways I’ve Caught Myself Wasting Money
  • Are You Using It Until It Breaks?
  • 20+ Totally Awesome Money-Saving Tips– I caution you against #3. An accident in which your car is severely damaged or totaled could have significant consequences if you are already struggling to make ends meet.
  • Holidays on a Budget
• Review the amount you pay for your necessities to see if you can reduce any of these costs. Here are several posts that provide some ideas.
  • 40 Smart Ways to Reduce Your Monthly Bills
  • 5 Ways To Save $532.30 On A Tight Budget
  • This post focuses specifically on your cell phone bill.
  • This post discusses your energy costs.
  • I really like this post as it covers one of my biggest areas of savings – cooking at home instead of in restaurants. Here is another variation on the same theme.
  • Figure out how much you are spending to pay off your debts, particularly if you have a lot of credit card debt. Research ways to re-finance your debt to reduce interest rateThe percentage which, when multiplied by the face amount or principal of a financial instrument, such as a bond, savings account or loan, determines the amount of interest that will be paid to or by t... More or, if necessary, lengthen time to payment.  For example, if you have something you can use as collateralA physical asset pledged by a borrower as security to a lender for a loan.  If the borrower defaults on the loan, the lender can take possession of the collateral. More, a collateralized loan will have a much lower interest rateThe percentage which, when multiplied by the face amount or principal of a financial instrument, such as a bond, savings account or loan, determines the amount of interest that will be paid to or by t... More than your credit cards. See my post on loans to understand the factors that affect the interest rateThe percentage which, when multiplied by the face amount or principal of a financial instrument, such as a bond, savings account or loan, determines the amount of interest that will be paid to or by t... More on a loan and the sensitivity of your monthly payments to changes in interestA charge for borrowing money, most often based on a percentage of the amount owed. More rates and termThe time period over which you re-pay the loan More.  This post has a lot of great information on re-paying student loans. I also like this post which talks about refinancing student loans – are you ready for it and some options.
  • There are dozens (hunderds?) of blogs on FIRE (Financial Independence, Retire Early). These bloggers tend to post their personal stories about how they are living very frugally so they can retire very early.  Although many of their approaches seem almost draconian, reading one of more of their posts might give you some ideas how you can cut back on your expenses.

There are a few other expenses you can adjust to balance your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More, but I suggest you do them only after you have fine-tuned your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More and looked into re-financing your debt.

• Reduce the amount you set aside for savings. Clearly, covering the basics, such as food and shelter, take priority over meeting your longer-term financial goals.   Once you have covered those expenses, you’ll need to balance your short-term wants with your long-term goals.  For example, you’ll need to decide whether you want to spend more today on entertainment or put more into your savings so you can have the retirement you desire. The idea of foregoing things today to the benefit of something you will get in the future is called delay of gratification.  It is a difficult concept to implement in practice but is often a key to long-term financial success.
• Avoid taking on too much more riskThe possibility that something bad will happen. More. For example, one way to save money on insurance (cars, homeowners/renters or health) is to increase your deductibleThe amount that you pay before the insurer starts reimbursing you either in part (see coinsurance) or in full. Deductibles can apply per claim (as is usually the case for auto collision and homeowners... More, lower your limit of liabilityWhen used as a noun, the amount you owe to someone else.  When used as an adjective, an insurance coverage that protects you when you cause damage or injury to someone else or their property. More or, in the case of car insurance, not purchase physical damage coverageAn insurance coverage that protects you when you cause damage to your own property, such as in a car accident, or without human cause, such as fire, hail, storm or earthquake. More.  As I discussed in my post on making financial decisions, these choices reduce your upfront cost, but can have serious consequences in an adverse situation.  If your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More is tight, you may not be able to afford to pay your full share of costs in the case of a serious accident, damage to your home or serious illness.

Closing Thoughts

Working to refine your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More to bring it in balance can be a real challenge. If you can’t do it on the second or third try, be patient with yourself. Learning to be financially responsible is often a long, challenging process.

Susie Q

Susie Q is a retired property-casualty actuaryA professional who assesses and manages the risks of financial investments, insurance policies and other potentially risky ventures. Source: www.investopedia.com/terms/a/actuary.asp More and mother of two adult children.  As her children were moving from their teens into their 20s, she found she was frequently a resource on many, many financial decisions and she had insights and information she could provide to them on a wide array of financial decisions.  She spent a significant portion of my career building statistical models of all of the financial risks of an insurance company and interpreting their findings to help senior management make better financial decisions.  She is the primary author at Financial IQ by Susie Q and volunteers with other organizations related to financial education.

Your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More includes your income in addition to money you spend.  In my previous posts on the budgeting process, I talked about setting your goals and tracking and recording your expenses.  This week, I’ll focus on your paycheck and other sources of income.

Before getting to that topic, here are your budgeting tasks for this week:

1. Continue using and refining your expense tracking system.
2. Continue to enter your expenses into the spreadsheet.
3. Record the details from your pay stubs and any other sources of income.

Pay Checks

Your pay stubs include both your wages and some expenses and taxes that are deducted by your employer.  This information can be entered on the Income tab.  You’ll need your pay stub as it lists all of the items that flow into and out of your paycheck to get the net amount of your check or automatic deposit. Put information from each line on your pay stub in a different row on the Income tab of the spreadsheet.

The date of each paycheck goes in Column A.

Record the amount of each line item in Column B.  Your income, such as your wages, should be entered with positive numbers. Deductions, such as taxes, your share of employee benefit charges and retirement savings, should be entered using negative numbers.  Use one row in the spreadsheet for your wages and another for each of your deductions.

You can record the category for each line in Column C.  If you want to use the tax approximation included in the spreadsheet, you’ll need use the labels “Wages”, “Retirement Savings” “Federal Income Taxes” and “State Income Taxes” for each of those categories.  Otherwise, you can use whatever labels you want.

If you get paid less often than once a month, enter the number of paychecks you get each year in Column D of each row.  Otherwise, leave this column blank.

Other Sources of Income

If you have other sources of income you receive on a regular basis, such as returns on investments, disability income or support from your parents, you’ll want to include those in your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More.  Unless you are on a leave from work or retired, you might leave any investment returns in your savings and not use them for spending. It is important to be aware of all sources of income in your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More including increases in your savings, so I suggest including them in your budgetA plan showing targets for income and expenses over a fixed time period, such as a month or a year. More explicitly.

InterestA charge for borrowing money, most often based on a percentage of the amount owed. More, dividends and appreciation are the three most common types of returns from investments. If you have any such returns, enter their amounts in Column A, their category in Column B and how often you receive the amount from Column A in Column C.  The three types of returns are taxed differently in the US.  If you live outside the US or don’t want to use the very rough tax approximation in the spreadsheet, you can enter a single line item for total investment returns and call it whatever you would like.  Otherwise, enter “InterestA charge for borrowing money, most often based on a percentage of the amount owed. More” in Column B for interestA charge for borrowing money, most often based on a percentage of the amount owed. More payments, “Dividends” for dividends received and “Appreciation” for changes in the market value of your investments.  Appreciation can be either positive (market value has gone up) or negative (market value has gone down).

For any other sources of income, enter the amount, category (with a name of your choosing) and how often you receive that amount in Columns A through C, respectively.  Sources of income other than investment returns and wages will be ignored in the income tax approximation.

Download Budgeting Spreadsheet Here

Susie Q

Susie Q is a retired property-casualty actuaryA professional who assesses and manages the risks of financial investments, insurance policies and other potentially risky ventures. Source: www.investopedia.com/terms/a/actuary.asp More and mother of two adult children.  As her children were moving from their teens into their 20s, she found she was frequently a resource on many, many financial decisions and she had insights and information she could provide to them on a wide array of financial decisions.  She spent a significant portion of my career building statistical models of all of the financial risks of an insurance company and interpreting their findings to help senior management make better financial decisions.  She is the primary author at Financial IQ by Susie Q and volunteers with other organizations related to financial education.